Japan's embrace of Russia under threat with Ukraine crisis

TOKYO, March 4 | By Aaron Sheldrick

TOKYO, March 4 Russia's incursion into Ukraine
is setting off alarm bells in Tokyo, where officials worry that
any push by Japan's Western allies to impose economic penalties
will undermine its drive to improve relations with Moscow.

While U.S. President Barack Obama and other G7 leaders of
advanced economies talk of sanctions or other punitive
responses, Japanese officials say ties with Moscow remain on
track.

There has been no change in the direction of economic and
resource diplomacy between Japan and Russia, Trade Minister
Toshimitsu Motegi said on Tuesday.

In reality, "they are in a state of shock", one diplomatic
source close to the situation said, referring to Japanese
officials. "It is a big pain in the back for the Japanese
government."

Closer ties are being driven by mutual energy interests, as
Russia plans to at least double oil and gas flows to Asia in the
next 20 years and Japan is forced to import huge volumes of
fossil fuel to replace lost energy from its nuclear power
industry, shut down after the 2011 Fukushima disaster.

"If Western countries come together and agree to take action
such as imposing economic sanctions, we may be affected," said a
senior executive at a Japanese company involved in the energy
sector in Russia.

"We don't know what will happen at the moment, but I am
afraid the energy sector usually gets a lot of attention."

Japan's Prime Minister Shinzo Abe has made better ties with
Moscow a priority since returning to power 15 months ago and has
met Russian President Vladimir Putin five times, despite a
territorial dispute dating from World War Two.

By contrast, Abe has not met either of the leaders of
neighbouring South Korea or China. Tokyo is embroiled in
disputes over uninhabited islands and wartime history with both
countries.

Russian forces seized Crimea, an isolated Black Sea
peninsula with an ethnic Russian majority, without firing a shot
following the ousting of the pro-Moscow Viktor Yanukovich as
Ukrainian president last month.

All eyes are now on whether Russia makes a military move in
predominantly Russian-speaking eastern Ukraine, where pro-Moscow
demonstrators have marched and raised Russian flags over public
buildings in several cities in the last three days.

DIPLOMATIC PUSH

Following his return to power in December 2012, Abe has
travelled extensively, pushing for expanded trade ties and
investment for Japan as he attempts to jolt the country's
economy out of more than a decade of stagnant growth.

Russian ties have been a major focus of that diplomatic
effort and Abe's visit to Moscow in April last year was the
first by a Japanese prime minister in a decade. He has met Putin
more than any other leader, Japan's foreign ministry confirmed.

Abe attended the opening ceremony of the Sochi Winter
Olympics last month, while Obama, French President Francois
Hollande and British Prime Minister David Cameron stayed away.
Whilst there, he announced a visit to Japan by Putin in the
autumn.

Japanese Foreign Minister Fumio Kishida still plans to visit
Russia this spring, the government said on Monday.

Official comments by Japanese government officials have
stressed the need to respect territorial integrity, softer
language than Tokyo signed up to in a G7 statement on the
Crimean situation on Monday. G7 leaders pulled out of talks on a
G8 summit in Sochi, according to the statement.

"As a G7 member, we agreed on the statement. Japan is hoping
that the situation will improve following the statement," Chief
Cabinet Secretary Yoshihide Suga said on Tuesday, when asked
about differences in the statement and Kushida's comments on the
crisis.

Japan has a lot at stake. An agreement on the islands east
of Hokkaido seized by Russia with the eviction of 17,000
Japanese would involve a peace treaty, after the two sides
failed to formally close the war in 1945, and pave the way for
closer energy ties.

EASTERN TRANSFORMATION

A dramatic transformation is under way in Russia's energy
sector, with oil flows being redirected to Asia via the East
Siberia-Pacific Ocean pipeline and Putin pushing for more gas
sales to reduce Moscow's reliance on Europe.

Japan now consumes a third of global liquefied natural gas
(LNG) shipments, and purchased 10 percent of its supplies from
Russia's east, which lies on Japan's doorstep.

Oil imports from Russia rose almost 45 percent in 2013 and
accounted for about 7 percent of supplies to the world's
fourth-biggest crude importer.

With all the country's nuclear reactors shut down and no
timetable for restarts, Tokyo is desperate to diversify and
slash costs of energy imports and Japanese companies are
involved in projects to export more gas in liquid form.

"A worsening relationship between the US and EU with Russia
may damage Japan's ongoing improved dialogue with its closest
neighbour if economic, trade, or banking sanctions follow," said
Tom O'Sullivan, founder of Independent energy consultancy
Mathyos Japan.

"This could impact Japan's gas and oil imports from Russia
as well as investments in upstream energy assets at a time when
Japan's energy security is still threatened due to the continued
closure of all of its nuclear power plants."

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